Step Up (aka Step Up on Second), a Santa Monica-based nonprofit, has a deep history in Los Angeles, with a mission to provide compassionate support to people experiencing serious mental health issues and chronic homelessness. So it surprised many to find the organization named as a defendant in a lawsuit filed by Attorney General Rob Bonta at the top of the year. Now, it appears the nonprofit may have been more involved in potential bad business dealings that initially outlined.
According to the L.A. Times, new court documents suggest that Step Up had an economic interest in Project Homekey developments previously not previously made public.
As we previously reported, the state alleges Shangri-La Industries, San Bernardino County and other California cities including Redlands and Thousand Oaks “breached their obligations” under terms of their agreements with California’s Homekey program. Step Up has been named as a partner in the Shangri-La properties under development.
The suit says Shangri-La received more than $114 million in Homekey funds from the state of California to convert motels into permanent supportive housing in San Bernardino, Redlands, Thousand Oaks and other locations in Northern California. The developer then granted and recorded deeds of trust to secure loans from the third-party lenders without first obtaining the state’s written authorization, as required under the Homekey agreements. Shangri-La then defaulted on the loans, leading to all seven Homekey properties to fall at risk of imminent foreclosure.
Now, it appears that Step Up invested alongside Shangri-La in the projects’ potential long-term profits. Then, in 2022, Step Up sold that interest to Shangri-La for $2.7 million.
The L.A. Times reports that in bankruptcy court filings, Shangri-La’s lawyers claim that money was meant to go toward construction on a Homekey project in Salinas, but instead went to Step Up because it needed cash and asked Shangri-La to buy out its profit interest.
Step Up could reportedly now face efforts by creditors to take back those funds.
The L.A. Times notes that Step Up President and Chief Executive Tod Lipka said the organization is cooperating with Bonta’s office and was only a service provider in the projects, with no part in handling Homekey funds, acquisition or financing.